Distributed generation is the generation of electricity from sources that are near the point of consumption, as opposed to centralized generation sources such as large utility-owned power plants. Centralized generation facilities are widely prevalent in industrialized countries, the vast majority of electricity being generated by centralized coal, natural gas, oil, nuclear, and hydropower plants. While centralized plants have good economies of scale, they usually transmit electricity long distances, requiring more energy to make up for transmission and distribution losses.
Clean distributed generation systems, such as combined heat and power (CHP), reduce the amount of energy lost in transmitting electricity because the electricity is generated near the point of consumption, often even in the same building or facility. This also reduces the size and number of power lines that must be constructed. CHP is more energy efficient than separate generation of electricity and thermal energy because the heat that would normally be wasted in conventional power generation is recovered as useful energy for satisfying an existing thermal demand, such as the heating and cooling of a building or water supply.
Despite the economic, energy, and environmental benefits of distributed generation, such systems face market and regulatory barriers, which differ among states and utility territories. Regulations dealing with air emissions, interconnection, net metering, and standby rates can often determine whether a distributed generation project will be implemented.